“Urbanization brings major changes in demand for agricultural products both from increases in urban populations and from changes in their diets and demands.”
by Peter Elliott – Manager – Strategy & Market Analysis, AEGIC
A little over one hundred years ago, globally, rural-dwelling agricultural producers outnumbered city-dwellers by a factor of 7:1. However, the past one hundred years or so have seen an unprecedented shift in human populations to the point where recently, for the first time in recorded history, the total urban population has exceeded the non-urban population. While this milestone was reached many decades ago in developed economies, there is an opportunity to witness this process firsthand in developing economies such as Indonesia.
Over the past two decades in particular, the Indonesian diet has undergone a radical transformation from the classic rice-centric diet to one featuring more grain-based foods and animal protein. While it may be tempting to characterise this change as a “Westernising diet”, it may be more useful to consider these trends as markers of a rapidly urbanising population. This is particularly the case with Indonesia, whose love affair with instant noodles has seen it become the world’s number two consumer (behind China) in only a few short decades. It is often assumed that noodles are a “traditional” Indonesian staple alongside rice, however the widespread consumption of noodles (and, in particular, instant noodles) is a relatively recent phenomenon in Indonesia. No food product better defines the transformation of the Indonesian diet more than instant noodles, yet if we focus on Westernisation, the instant noodle story is lost.
In the case of Indonesia, urbanisation drives changes to dietary patterns for two main reasons – convenience and affluence. The average Indonesian office worker may often have insufficient time to prepare a traditional rice-based dish. Instead, they are increasingly turning to instant noodles and Western-style baked goods such as bread. These types of foods can be quickly prepared or purchased cheaply to be eaten “on the run” or during their lunch break.
Urbanisation is also typically accompanied by rising affluence, higher GDP per capita and more disposable income. This is one of the reasons why Jakarta makes up around 12% of the population yet accounts for over 17% of consumer expenditure. Whilst rural-dwelling Indonesians continue to base their diet around cheap traditional staples such as rice and tempeh (a fermented dish made from soybeans), the increasingly cashed-up city folk have the disposable income to afford Western-style baked goods, including bread, cakes and cookies.
Figure 1: Bread rising Retail Value (RSP) – IDR Billion (Source – Euromonitor)
Figure 2 – Indonesia Having Their Cake Retail Value (RSP) – IDR Billion (Source – Euromonitor)
According to UN data, for the period 2017-2030, Indonesia is forecast to be one of the five countries with the largest increase in urban population. All of Indonesia’s recent population gains have come from its urban population, with the non-urban population actually decreasing. However, it is important to note that this statistic doesn’t tell us where these 17 million new urbanites were actually born, so does not capture birth rates or migration flows.
To the extent that urbanisation is driving these changes to the composition of Indonesia’s diet, demand for wheat-based foods is likely to continue to grow (Figure 3), albeit at a slowing rate. We are already seeing evidence of this expected deceleration (Figure 4). However, as long as the market continues to grow (albeit with more modest gains), this bullish outlook will hold.
Figure 3 – Taking a Breather – Sales Growth of Bread in Indonesia % Y-O-Y Growth (Source – Euromonitor)
Figure 4 – Sales Growth – Cakes in Indonesia % Y-O-Y Growth (Source – Euromonitor)
This optimistic view is supported by a broad range of metrics all trending in the right direction –
- Growing population and importantly, growing urban population
- Median age is low by global standards
- Poverty is declining markedly
- Consumer spending is rising dramatically
- Disposable income is rising
2012-2017 – Indonesian data is all heading in the right direction (Source – Euromonitor)
In the context of the Australian export grains sector, Indonesia’s unambiguously rosy demographic story provides us with the opportunity to laser-focus our activities. Because comparatively little time needs to be spent establishing whether this is a market we should be focusing on, more resources can be directed towards answering the next question – How can the Australian grains sector capitalise on Indonesia’s growing hunger for high quality wheat?
We will be addressing this question in our upcoming report series on the large (and growing) Indonesian opportunity for Australian grain exports. Accompanying these reports will be further blog posts on the same topic.